FY 2005 - University of Missouri System

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N otes to Combined Financial StatementsF o r t h e y e a r s e n d e d J u n e 3 0 , 2 0 0 5 a n d 2 0 0 4Concentration of Credit Risk – The concentration of credit risk is the risk of loss that may occur due to the amountof investments in a single issuer (not including investments issued or guaranteed by the U.S. government, investmentsin mutual funds, or external investment pools).For University funds invested through the Pooled General Investments category the following restrictions apply:1) Corporate Bonds should not exceed 20% of the portfolio; 2) Variable Rate securities should not exceed 15% ofthe portfolio; and 3) Investments in obligations of the U.S. Government, U.S. Government Agency issues or U.S.Government guaranteed securities is unlimited.For University funds invested through the Pooled Endowment Investments category, target asset mixes are assessedand evaluated to ensure diversification. The investment policy allows for a portfolio consisting of no more than 47.5%U.S. equity, 25% international equity, 10% emerging markets equity, 10% alternative investments (maximum of 5.0%in hedge funds), 10% real estate and 27.5% global fixed income.Portions of the Pooled Endowment Investments are invested in a fixed income fund, called the Fixed Income Pool,which, due to donor restrictions, can only be invested in fixed income securities. Investments in this portfolio consistof U.S. Government, U.S. Government Agency issues, corporate fixed income, commercial paper and repurchaseagreements.As of June 30, 2005, of the University’s total investments, 18.7% are issues of the Federal Home Loan Bank (FHLB),8.5% are issues of the Federal National Mortgage Association (FNMA), and 5.1% are issues of the Federal Home LoanMortgage Corporation (FHLMC).Securities Lending Transactions – The University participates in an external investment pool securities lendingprogram to augment income. The program is administered by the University’s custodial agent bank, which lendsequity, government and corporate securities for a predetermined period of time to an independent broker/dealer(borrower) in exchange for collateral. Collateral may be cash, U.S. Government securities, defined letters of creditor other collateral approved by the University. Loans of domestic securities are initially collateralized at 102% of thefair value of securities lent. Loans of international securities are initially collateralized at 105% of the fair value ofsecurities lent. The University has minimized its exposure to credit risk from borrower default by having the custodialagent bank determine daily that required collateral meets a minimum of 100% of the fair value of securities on loanfor domestic securities lent and 105% for international securities lent. The fair value of collateral for securities on loantotaled $81,611,000 and $61,196,000 at June 30, 2005 and 2004, respectively.The University continues to receive interest and dividends during the loan period, as well as a fee from the borrower.In addition, the maturities of the investments made with the cash collateral generally match the maturities of thesecurities lent. At June 30, 2005, the University has no credit risk exposure since the collateral held exceeds the valueof the securities lent. The University is fully indemnified by its custodial bank against any losses incurred as a resultof borrower default.In addition, at June 30, 2005 and 2004, letters of credit and security collateral, not meeting the criteria for inclusion inthe Statements of Net Assets, totaled $3,170,000 and $941,000, respectively. At June 30, 2005, the aggregate fair valueof the securities lent and related collateral received was $81,799,000 and $60,000,000, respectively.Discretely Presented Component Unit – Medical AllianceInvestments – The investment policies of Medical Alliance are established by its board of directors. The policies areestablished to ensure that Medical Alliance funds are managed in accordance with the “Prudent Man Rule.”2 0 0 5 F i n a n c i a l R e p o r t : U n i v e r s i t y o f M i s s o u r ia c o m p o n e n t u n i t o f t h e S t a t e o f M i s s o u r i 31
N otes to Combined Financial StatementsF o r t h e y e a r s e n d e d J u n e 3 0 , 2 0 0 5 a n d 2 0 0 4At June 30, 2005 and 2004, Medical Alliance held the following investments (in thousands of dollars):2005 2004Internally Designated for Capital Improvements:Repurchase Agreements $ - $ 5,000Mortgage-backed securities 10,668 8,083Money Market Accounts 13,766 6,100Interest Receivable 57 33U.S. Treasury Obligations 74 74Certificates of Deposit 11,271 5,525Subtotal 35,836 24,815Held by Trustee Under Indenture Agreement:Money Market Accounts 8,381 19,390Interest Receivable 8Less Portion Required for Current Obligations (1,210) (748)$ 43,015 $ 43,457University of Missouri Retirement TrustInvestments – Retirement Trust – The Board of Curators of the University of Missouri establishes the investmentpolicies for the Retirement Trust. Retirement investments emphasize diversification across asset classes, dominated byequity securities, in order to maximize total investment returns. While pursuing this objective, the Retirement Trustmaintains its fiduciary duties applicable to investments set forth in Section 105.688 of the Revised Statutes of Missouri.The Retirement Trust investments earned a total return of 11.1%, including unrealized gains and losses, for the yearended June 30, 2005, and 18.5% for the year ended June 30, 2004.At June 30, 2005, the Retirement Trust held investments, by investment type, as follows (in thousands of dollars):Carrying Valueas ofJune 30, 2005Government Obligations $ 301,689Corporate Bonds and Notes 109,375Corporate Stocks 1,783,813Other 33,282Total Short-Term and Long-Term Investments 2,228,159Commercial Paper 12,557Total Cash and Cash Equivalents 12,557Total Investments $ 2,240,716Custodial Credit Risk – The custodial credit risk for investments is the risk that in the event of failure of thecounterparty to a transaction, the Retirement Trust will not be able to recover the value of the investments that are in thepossession of an outside party. The investment of $12,557,000 in commercial paper is uninsured and uncollateralized.The remainder of the Retirement Trust’s investments are insured or registered and are held by the Retirement Trust oran agent in its name.Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of aninvestment. As a means of ensuring the safety of principal invested, the Retirement Trust’s investment policy requiresdiversification of the investment portfolio.322 0 0 5 F i n a n c i a l R e p o r t : U n i v e r s i t y o f M i s s o u r ia c o m p o n e n t u n i t o f t h e S t a t e o f M i s s o u r i
Page 2 and 3: Table of ContentsGOVERNING BOARD AN
Page 4 and 5: G overning Board and Administrative
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Page 20 and 21: S tatements of Net AssetsA S O F J
Page 22 and 23: Statements of Revenues, Expenses an
Page 24 and 25: S Ftatements of Cash FlowsO R T H E
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FY 2005 - University of Missouri System

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